N O T E. The Course on Dispute Settlement in International Trade, Investment and Intellectual Property consists of forty modules.

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2 ii Dispute Settlement N O T E The Course on Dispute Settlement in International Trade, Investment and Intellectual Property consists of forty modules. This module has been prepared by Mr. Eric Schwartz and Mr. Reza Mohtashami at the request of the United Nations Conference on Trade and Development (UNCTAD).The views and opinions expressed in this module are those of the authors and not necessarily those of the United Nations, WTO, WIPO, ICSID, UNCITRAL or the Advisory Centre on WTO Law. The designations employed and the presentation of the material do not imply an expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country, territory, city or areas or of its authorities, or concerning the delimitations of its frontiers or boundaries. In quotations from the official documents and the jurisprudence of international organizations and tribunals countries are designated as reported. The United Nations holds copyright to this document. The course is also available in electronic format on the UNCTAD website ( Copies may be downloaded free of charge on the understanding that they will be used for teaching or study and not for a commercial purpose. Appropriate acknowledgement of the source is requested. UNCTAD/EDM/Misc.232/Add.6 Copyright United Nations, 2003 All rights reserved

3 2.7 Procedural Issues iii TABLE OF CONTENTS Notes ii Overview 1 Objectives 3 Introduction 5 1. Initiation of Arbitration Proceedings 7 a) Commencing the Arbitration 7 b) Registration of the Request by the Secretary-General 9 2. The Arbitral Tribunal 11 a) Constituting the Arbitral Tribunal 11 b) Replacement and Disqualification of Arbitrators Conducting the Arbitration 19 a) The Rules of Procedure 19 b) The Tribunal s First Session 20 c) The Written and Oral Procedure 21 d) Dealing with Evidence 22 e) Failure to Present Case and Discontinuance of Proceedings 23 f) Ancillary Claims 23 g) Place of Proceedings Provisional Measures The Award 29 a) Formal and Substantive Requirements of an Award 29 b) The Publication of Awards 31 c) The Date of the Award Costs of the Arbitration 35 Test My Understanding 39 Hypothetical Cases 41 Further Reading 43

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5 2.7 Procedural Issues 1 OVERVIEW This Module deals with the most common procedural issues encountered in arbitration proceedings under the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the Convention). The procedural issues encountered in an ICSID arbitration are likely to be similar to issues encountered in other forms of arbitration. However, the ICSID system is unique in retaining its autonomy and independence from the application of national systems of law or the interference of national courts. As a result, the Convention and its related instruments provide a specific and comprehensive procedural regime for the conduct of ICSID arbitrations, which must be adhered to by the parties to an arbitration. Arbitration is a consensual process, whereby the parties retain extensive freedom or autonomy to determine the rules of procedure that should govern the arbitration. Proceedings under the Convention are no different, as the parties retain extensive autonomy in this respect. This autonomy is limited, however, by the mandatory provisions of the Convention which provide a framework that governs the arbitral procedure. In addition, the Administrative Counsel of ICSID has adopted Administrative and Financial Regulations and Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (Institution Rules). These rules and regulations contain further mandatory provisions that limit the autonomy of the parties. The majority of the cases that are being brought before ICSID today are cases arising out of international treaties. These tend to take two forms, either bilateral investment treaties entered into between States concerning the promotion and protection of foreign investment (BITs) or multilateral agreements, such as the North American Free Trade Agreement (NAFTA) or the Energy Charter Treaty that contain dispute resolution clauses in favour of ICSID arbitration. Many of these treaties contain mandatory provisions that the parties must abide by in the initiation and conduct of arbitration proceedings.

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7 2.7 Procedural Issues 3 OBJECTIVES Upon completion of this Module the reader should be able to: Describe the initiation of ICSID arbitration. Explain the process of constituting the tribunal. Define the significance of the Arbitration Rules. Summarize the rules governing the place and the costs of proceedings. Discuss the procedure before the tribunal. Analyse the consequences of non-cooperation by a party. Delineate the role of provisional measures in ICSID arbitration. Recount the elements that must be contained in awards.

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9 2.7 Procedural Issues 5 INTRODUCTION The basic framework of the arbitration procedure under the Convention 1 is set out in Chapter IV, which contains Articles 36 to 55. The topics covered range from the institution of proceedings to the recognition and enforcement of the resulting awards. In addition, Articles 56 to 63 deal with the replacement and disqualification of arbitrators, the cost of the proceedings and the place of the proceedings. Arbitration Rules Article 44 of the Convention Autonomy of the parties Hierarchy of procedural rules The Convention contains a large number of procedural rules, some of which go into considerable detail. The Rules of Procedure for Arbitration Proceedings (Arbitration Rules) adopted by the Administrative Council pursuant to Article 6(1) of the Convention provide even more depth and detail. The current set of Rules was adopted by the Administrative Council on September 26, 1984 and took effect immediately. 2 The Convention s key procedural provision in respect of arbitration proceedings is contained in Article 44: Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question. In principle, the parties to an ICSID arbitration can depart from the provisions of the Arbitration Rules. Furthermore, several of the articles in Chapters IV to VII of the Convention proclaim the freedom of the parties to agree on the matter at hand or on alternatives to the provision in question. Unlike the Arbitration Rules, the Institution Rules 3 and the Centre s Administrative and Financial Regulations 4 are not subject to modification by the parties. The parties may derogate from the latter, only when expressly permitted to do so. Although the parties do retain considerable discretion in specific respects to tailor their arbitration procedure, they are nevertheless bound by the mandatory provisions of the Convention and related instruments, which form the apex of a hierarchy of procedural rules. This interrelationship of the various procedural rules has been described as follows: 1 Mandatory provisions of the Convention. 2 The Administrative and Financial Regulations and the Institution Rules (except to the extent that variation is permitted by their 1 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, March 18, 1965, in force October 14, 1996; 575 UNTS 159; 4 ILM 532 (1965); 1 ICSID Reports 3. 2 Rules of Procedure for Arbitration Proceedings (Arbitration Rules), 1984, 1 ICSID Reports Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings, 1984, 1 ICSID Reports Administrative and Financial Regulations, 1 ICSID Reports 35.

10 6 Dispute Settlement own terms). 3 Procedures agreed to by the parties. 4 Provisions of the Convention that are open to modification by the parties. 5 The Arbitration Rules. 6 Decisions of the tribunal on procedural matters. 5 The ICSID Additional Facility Non-Contracting States or their nationals may become parties to proceedings under the ICSID Additional Facility (see Module 2.2, Section 6). Disputes administered by the Centre in such cases are subject to the Additional Facility Arbitration Rules. This Module is solely concerned with disputes that fully satisfy the Convention s jurisdictional requirements and will not deal with disputes under the Additional Facility. 5 C. Schreuer, The ICSID Convention: A Commentary, Article 44, para. 55, p. 685 (2001).

11 2.7 Procedural Issues 7 1. INITIATION OF ARBITRATION PROCEEDINGS a) Commencing the Arbitration Request for arbitration A claimant wishing to commence an ICSID arbitration must address its request for arbitration (the request) to the ICSID Secretary-General. Article 36(1) of the Convention provides: Any Contracting State or any national of a Contracting State wishing to institute arbitration proceedings shall address a request to that effect in writing to the Secretary-General who shall send a copy of the request to the other party. The request may come from either the host State or the investor, although the request is far more likely to be filed by the investor. The investor does not require the prior permission of its national State to institute proceedings. The request may also be filed jointly by both parties, as expressly foreseen in Institution Rule 1. The provisions of Article 36(1) of the Convention are elaborated further in the Institution Rules. Thus, Institution Rule 1 provides that the request must be made in writing, indicate that it relates to an arbitration (or conciliation), be dated and signed and drawn up in an official language of the Centre. Languages and number of copies Lodging fee Information required The three official languages of the Centre are English, French and Spanish (Administrative and Financial Regulation 34). Institution Rule 4 specifies the number of signed copies of the request that need to be served on the Centre (an original, plus five copies). The request should be accompanied by the appropriate lodging fee in accordance with Administrative and Financial Regulation 16. The fee is nonrefundable in the event of withdrawal or refusal of the request by the Secretary- General. As of January 1, 2002, the fee was US$ In accordance with Institution Rule 5, non-payment of the lodging fee will prevent the Secretary- General from proceeding with the arbitration, apart from acknowledging receipt of the request. Article 36(2) of the Convention specifies the information to be included in the request: The request shall contain information concerning the issues in dispute, the identity of the parties and their consent to arbitration in accordance with the rules of procedure for the institution of conciliation and arbitration proceedings. The requirements of Article 36(2) of the Convention are further amplified in Institution Rule 2. The information to be furnished must satisfy the jurisdictional 6 See the Schedule of Fees, dated January 1, 2002, available on the ICSID website.

12 8 Dispute Settlement requirements of the Centre, both ratione materiae and ratione personae. In addition, information must be provided in respect of the parties consent to arbitration. Rule 2 of the Institution Rules Designation of parties Consent Nationality Issues in dispute Additional information Summary of case BITs The information specified in Institution Rule 2 must be provided and cannot be waived by the parties. Failure to furnish the necessary information may prevent the Secretary-General from being able to register the request under Article 36(3) of the Convention, as discussed below. The following information must be provided under Institution Rule 2. The request must identify precisely each party to the dispute and include their address (Rule 2(1)(a)). In the event that one of the parties is a constituent subdivision or agency of a Contracting State that has been designated to the Centre by that State pursuant to Article 25(1) of the Convention, the claimant must provide evidence to this effect together with the request (Rule 2(1)(b)). The request must indicate the date of consent (Rule 2(1)(c)) and provide evidence of the instruments in which consent is recorded (Rule 2(2)), including details of consent in respect of any constituent subdivisions or agencies, if appropriate. Details must also be provided with respect to the nationality of the investor demonstrating that it is a national of a Contracting State (Rule 2(1)(d)). In the event that the investor is a juridical person incorporated in the Contracting State that is party to the dispute, the request must include details of any agreement of the parties that the investor should be treated as a national of another Contracting State in accordance with Article 25(2)(b) of the Convention. Finally, the request must contain information on the issues in dispute to show that there is a legal dispute between the parties in connection with an investment (Rule 2(1)(e)). In addition to the mandatory requirements of Institution Rule 2, Rule 3 provides that the request may contain additional information, regarding, in particular, any agreement between the parties concerning the number of arbitrators and the method of their appointment. Other procedural agreements, concerning, for example, the language of the proceedings or the place of proceedings may also be included. As the request is also the first document that is likely to be read by the parties, it is useful for the claimant to provide a summary account of its case on the merits, explaining the various grounds that it is relying upon in bringing its claim. 7 Although the ICSID Convention does not provide a time limit within which a 7 J. Townsend, The Initiation of Arbitration Proceedings: «My Story Had Been Longer», 13 ICSID Review FILJ 21 (1998), at p. 24.

13 2.7 Procedural Issues 9 request must be made, such limits may exist in relation to the parties arbitration agreement. As discussed above, the majority of cases before ICISID today arise out of BITs entered into between States for the promotion and protection of foreign investment. 8 Many of the BITs do however make certain time limits a condition of consent. Typically, they require that six months must have elapsed since the events giving rise to a claim or since the investor gave notice of a potential dispute between the parties. The purpose of these requirements is to prevent investors from instituting proceedings against a host State in what is likely to be a high profile dispute, without allowing the State an opportunity to resolve the dispute amicably. In addition, the requirement of a notice period means that the host State will not be surprised when it receives a copy of the investor s request from ICSID. NAFTA Proceedings commenced pursuant to Chapter XI of NAFTA also provide for a notice period of six months. 9 Moreover, under the provisions of NAFTA, a claim may only be allowed within three years from the date on which the investor acquired knowledge of the relevant facts. 10 b) Registration of the Request by the Secretary-General Screening of requests Once the request has been received by the Centre, the Secretary-General must screen the request prior to its registration, in accordance with Article 36(3) of the Convention: The Secretary-General shall register the request unless he finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre. He shall forthwith notify the parties of registration or refusal to register. The powers of the Secretary-General are amplified in Institution Rule 6. The screening power enjoyed by the Secretary-General is designed to avoid the filing of spurious or incomplete requests or situations where a tribunal, once established, would almost certainly find itself without jurisdiction. The power enjoyed by the Secretary-General in this respect is similar to the power enjoyed by the International Court of Arbitration of the International Chamber of Commerce to satisfy itself that prima facie an ICC arbitration agreement exists between the parties. The decision of the Secretary-General is made primarily on the basis of the information contained in the request, and the Secretary-General must assume that the information supplied in the request is correct. In the event that the request is incomplete or inadequate, the Centre is likely to contact the requesting party in order to supplement the request. 8 As of December 2000, three quarters of the active cases before the Centre were based on BITs or multilateral agreements. E. Obadia, Current Issues in Investment Disputes, The Journal of World Investment, Vol. 2, No. 1, p Article 1120(1), 32 ILM 643 (1993). 10 Articles 1116(2) and 1117(2).

14 10 Dispute Settlement Pre-filing of requests Refusal to register Notice of registration Withdrawal of requests Advance consultation with the Centre or the filing of a draft request prior to the formal lodging of the request is possible and is beneficial to the claimant in avoiding the cost and delay involved in having its request rejected. 11 The Secretary-General will only refuse to register the request if it is manifestly outside the jurisdiction of ICSID. Examples would include instances where one party is neither a Contracting State or a national of a Contracting State, or in the event that no evidence was furnished of written consent to the Centre s jurisdiction. 12 Thus, by providing the information required under Institution Rule 2 and paying the lodging fee, the claimant can be assured that its request will be lodged. Once a request has been registered, the Secretary-General notifies the parties of the registration on the same day (Institution Rule 6(1)(a)). The notice of registration must contain certain information as set out in Institution Rule 7, including, inter alia, the date of registration, the appropriate address for communication between the parties and an invitation to the parties to provide details of any agreed provisions regarding the number and method of appointment of arbitrators. A request cannot be unilaterally withdrawn once it has been registered (Institution Rule 8). Thereafter, the proceedings may be discontinued at a party s request, only with the other party s agreement under Arbitration Rule 44. Alternatively, the parties may jointly seek the discontinuance of the proceedings following a settlement, pursuant to Arbitration Rule 43. Summary: ICSID arbitrations are commenced by means of a request for arbitration sent to the Secretary-General. A request must contain the information specified in Article 36(2) of the Convention and Rule 2 of the Institution Rules. A claimant must observe the procedural requirements contained in the parties arbitration agreement or document containing consent. The Secretary-General will refuse to register the request if he finds that the dispute is manifestly outside the jurisdiction of the Centre. Once registered, the Secretary-General will notify the parties of the registration on the same day. 11 C. Brower., The Initiation of Arbitration Proceedings: «Jack be Nimble, Jack be Quick!», 13 ICSID Review FILJ 15 (1998). 12 Note C. to Institution Rule 6 of 1968, 1 ICSID Reports 58.

15 2.7 Procedural Issues THE ARBITRAL TRIBUNAL Parties freedom of choice Articles 37 to 40 of the Convention deal with the constitution of tribunals under the ICSID system. Once the request for arbitration has been registered, Article 37(1) of the Convention provides that the tribunal is to be constituted as soon as possible thereafter. As discussed in the preceding section, if the parties have reached an agreement concerning the number of arbitrators and the method of their appointment, such information may be included in the request. a) Constituting the Arbitral Tribunal An uneven number of arbitrators Rule 2 procedure Article 37(2)(a) of the Convention has mandatory effect and cannot be deviated from by agreement of the parties. It provides that the tribunal must consist of a sole arbitrator or any uneven number of arbitrators to which the parties agree. Although the Convention foresees the possible appointment of a sole arbitrator or an uneven number greater than three, in practice, the vast majority of ICSID tribunals have been constituted with three arbitrators. Arbitration Rule 2 provides a specific procedure to be followed by the parties to facilitate an agreement on the constitution of the tribunal: (1) If the parties, at the time of the registration of the request for arbitration, have not agreed upon the number of arbitrators and the method of their appointment, they shall, unless they agree otherwise, follow the following procedure: (a) the requesting party shall, within 10 days after the registration of the request, propose to the other party the appointment of a sole arbitrator or of a specified uneven number of arbitrators and specify the method proposed for their appointment; (b) within 20 days after receipt of the proposals made by the requesting party, the other party shall: (i) accept such proposals; or (ii) make other proposals regarding the number of arbitrators (c) and the method of their appointment; within 20 days after receipt of the reply containing any such other proposals, the requesting party shall notify the other party whether it accepts or rejects such proposals. (2) The communications provided for in paragraph (1) shall be made or promptly confirmed in writing and shall either be transmitted through the Secretary-General or directly between the parties with a copy to the Secretary-General. The parties shall promptly notify the Secretary-General of the contents of any agreement reached. (3) At any time 60 days after the registration of the request, if no agreement on another procedure is reached, either party may inform the Secretary General that it chooses the formula provided for in Article 37(2)(b) of the Convention. The Secretary-General shall thereupon promptly inform the other party that the Tribunal is to be constituted in accordance with that Article.

16 12 Dispute Settlement Rule 2 is designed to make it possible to achieve an agreement between the parties and finalize the appointment of a tribunal within 90 days, before the procedure outlined in Article 38 of the Convention becomes available. Thus, whilst preserving the parties freedom of choice in appointing the tribunal, Rule 2 limits the potential for procrastination. Default procedure If the parties have not reached an agreement in respect of the composition of the tribunal, either in the instrument containing consent or within 60 days after the registration of the request, the following default provisions of Article 37(2)(b) take effect: Where the parties do not agree upon the number of arbitrators and the method of their appointment, the Tribunal shall consist of three arbitrators, one appointed by each party and the third, who shall be the president of the Tribunal, appointed by agreement of the parties. In order to expedite the process further, Arbitration Rule 3 provides a procedure to be followed if the tribunal is to be constituted in accordance with Article 37(2)(b) of the Convention as follows: (1) If the Tribunal is to be constituted in accordance with Article 37(2)(b) of the Convention: (a) either party shall in a communication to the other party: (i) name two persons, identifying one of them, who shall not have the same nationality as nor be a national of either party, as the arbitrator appointed by it, and the other as the arbitrator proposed to be the President of the Tribunal; and (ii) invite the other party to concur in the appointment of the arbitrator proposed to be the President of the Tribunal and to appoint another arbitrator; (b) promptly upon receipt of this communication the other party shall, (c) in its reply: (i) (ii) name a person as the arbitrator appointed by it, who shall not have the same nationality as nor be a national of either party; and concur in the appointment of the arbitrator proposed to be the President of the Tribunal or name another person as the arbitrator proposed to be President; promptly upon receipt of the reply containing such a proposal, the initiating party shall notify the other party whether it concurs in the appointment of the arbitrator proposed by that party to be the President of the Tribunal. (2) The communications provided for in this Rule shall be made or promptly confirmed in writing and shall either be transmitted through the Secretary-General or directly between the parties with a copy to the Secretary-General. Rule 3 requires each party to nominate both its party appointed arbitrators and the president of the tribunal at the same time, thus expediting the constitution of the tribunal. The agreement of the parties is not required for the appointment of party appointed arbitrators. Only the appointment of the president is subject to the agreement of the parties. The parties retain the right

17 2.7 Procedural Issues 13 to modify or extend the procedure set out in Rule 3 by agreement. The parties choice of arbitrators is unencumbered subject only to the limitations discussed further below. Thus, the parties are not required to appoint arbitrators from the Panel of arbitrators, as discussed further below. Appointment of arbitrators Constitution of the tribunal Fallback procedure Once an arbitrator has been appointed by a party, it is incumbent on the parties to notify that appointment to the Secretary-General, who will seek acceptance from the individual concerned (Arbitration Rule 5). In the event that the person appointed fails to accept the appointment within 15 days (Arbitration Rule 5(3)), the party concerned will be given the opportunity to make another selection. In accordance with Arbitration Rule 6, the tribunal is deemed to be constituted and the proceedings to have begun on the date that all of the arbitrators have accepted their appointment. Under Article 38 of the Convention, if the tribunal is not constituted within 90 days from the date of registration of the request, the Chairman of the Administrative Council 13, at the request of either party, will appoint any arbitrators that the parties have failed to appoint. This provision provides a fallback procedure that may be triggered by either of the parties when faced with an uncooperative counter party. As the constitution of the tribunal often takes more than 90 days, the parties may agree to extend this period. Even in the absence of an agreement between the parties, the Chairman of the Administrative Council will not intervene without being prompted by one of the parties. 14 Although the request under Article 38 is made to the Chairman of the Administrative Council, it should be made through the Secretary-General in accordance with Administrative and Financial Regulation 24(1). Consultation with the parties Once a request has been made by one of the parties, the Chairman of the Administrative Council must consult both parties as far as possible. Although the Chairman of the Administrative Council is free to disregard the views or objections raised by the parties in appointing an arbitrator, in practice, their views are unlikely to be ignored, unless such objections are not reasonable. The obligation to consult extends to any arbitrators not yet appointed at the time the request is made. The Chairman of the Administrative Council must perform his obligation to appoint within 30 days of receiving a request by the parties (Arbitration Rule 4(4)), although the requirement of 30 days may be extended by agreement of the parties. In appointing an arbitrator, the Chairman of the Administrative Council acts on the recommendation of the Secretary-General.The Chairman of the Administrative Council s choice of arbitrators is limited in two respects. 13 Under Article 5 of the Convention the President of the International Bank for Reconstruction and Development is ex officio Chairman of ICSID s Administrative Council. 14 See Rule 4 of the Arbitration Rules for further clarification in this respect.

18 14 Dispute Settlement First, under Article 38, the Chairman of the Administrative Council is prohibited from appointing arbitrators of the same nationality as the foreign investor or the host State. 15 Second, in accordance with Article 40(1) of the Convention, the Chairman of the Administrative Council may only appoint arbitrators from the Panel of Arbitrators. This will be discussed in further detail below. Limitation on the choice of the parties Nationality of arbitrators Although the parties have broad freedom to designate the arbitrators of their choice, their freedom of choice is limited in three respects, as follows: (i) the nationality of the arbitrators is subject to Article 39 of the Convention; (ii) the arbitrator must possess the qualities set out in Article 14(1) of the Convention; and (iii) the appointed arbitrator must be independent of the parties. These limitations are discussed below. Article 39 of the Convention provides that the majority of the arbitrators shall be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute. The practical effect of Article 39 is that where there are three arbitrators, the parties cannot appoint arbitrators of the same nationality as themselves. This would be possible, however, if there were five or more arbitrators. In the rules of other arbitral institutions it is not usual to impose restrictions on the nationality of arbitrators appointed by the parties, in the context of investor/state arbitration. By contrast, the Convention aims to minimize the likelihood of party appointed arbitrators being predisposed in favour of the parties appointing them. The prohibition against national arbitrators does not apply if each individual arbitrator has been chosen by agreement of the parties. Qualities required of arbitrators Requirement of independence Pursuant to Article 40(2) read in conjunction with Article 14(1) of the Convention, arbitrators (and persons appointed to the Panel of arbitrators) must have the following qualities: high moral character; recognised competence in the field of law, commerce, industry or finance; reliability to exercise independent judgment. The list of qualities required of arbitrators is set out in Article 14(1) of the Convention. In addition to the qualities set out in Article 14(1) of the Convention, potential arbitrators should also be independent of the parties. Thus, the existence of a possible conflict of interest in a particular case would be a bar to the appointment of an arbitrator. Although this is not expressly provided for in the Convention, Arbitration Rule 6 requires that each arbitrator sign a declaration before or at the first session of the tribunal providing details of all past and 15 This limitation on the choice of the Chairman of the Administrative Council only applies if the choice is being made in accordance with the provisions of Article 38 of the Convention. It therefore does not apply if the Chairman of the Administrative Council is acting as an appointing authority chosen by the parties in appointing an arbitrator.

19 2.7 Procedural Issues 15 present professional, business and other relationships with the parties. The Panel of arbitrators Articles 12 to 16 of the Convention establish a Panel of Arbitrators to be maintained by the Centre. The Panel is made up of arbitrators appointed by Contracting States (4 appointees by each State) and by the Chairman of the Administrative Council (10 appointees). The Panel of Arbitrators provides the parties with a list of arbitrators that they may select from, although their choice is not restricted to the Panel. The appointments made by the Chairman of the Administrative Council under the provisions of Article 38 of the Convention must be made from the Panel. Summary: Parties are free to designate the arbitrators of their choice when constituting the arbitral tribunal. When a tribunal is to be composed of three members, as is most commonly the case, each party is entitled to appoint an arbitrator. Failure to agree on the composition of the tribunal will trigger the default provision of Article 37(2)(b) of the Convention: three arbitrators, two appointed by the parties and the third by agreement. If the tribunal is not constituted within 90 days of the date of registration of the request, either party may request that the remaining arbitrators be appointed by the Chairman of the Administrative Council. In a tribunal composed of three arbitrators, the parties may not appoint their nationals or co-nationals as arbitrators, unless each arbitrator has been chosen by agreement. Arbitrators must have a high moral character, recognised competence in the field of law, commerce, industry and finance and be able to exercise independent judgment. A Panel of Arbitrators is maintained by the Centre. All appointments made by the Chairman of the Administrative Council must be made from the Panel. However, parties are not required to appoint arbitrators from the Panel. b) Replacement and Disqualification of Arbitrators Vacancy on the tribunal Article 56(1) of the Convention provides that once a tribunal has been constituted and the proceedings begun, the tribunal s composition shall remain unchanged. In the event that an arbitrator should die, become incapacitated or resign, the resulting vacancy will be filled in accordance with Articles 37 to 40 of the Convention, as discussed above In accordance with Rule 11(1) of the Arbitration Rules, a vacancy should be filled by the same method by which the original appointment had been made. This is subject to the condition that if the party or parties fail to make an appointment within 30 days, the appointment will be made by the Chairman of the Administrative Council (Rule 11(2) of the Arbitration Rules).

20 16 Dispute Settlement The purpose of these provisions is to avoid undue delay and to provide for the swift appointment of an arbitrator in the event of a vacancy on the tribunal. 17 Suspension of proceedings Resignation Consent of the other arbitrators Procedure following new appointment Disqualification Procedure for disqualification Upon notification to the parties of a vacancy occurring in any of the circumstances described in Article 56(1), the Secretary-General is obliged to suspend the proceedings until the vacancy has been filled (Arbitration Rule 10). In the event of a resignation, Arbitration Rule 8(2) provides that the resigning arbitrator must submit his resignation to the other members of the tribunal. If the resigning arbitrator was appointed by one of the parties, the other members of the tribunal must consider the reasons for the resignation and whether to consent thereto. Article 56(3) provides that, in the event of the resignation of a party appointed arbitrator without the consent of the other members of the tribunal, the resulting vacancy will be filled by the Chairman of the Administrative Council from the Panel of Arbitrators. This is an exception to the principle that vacancies should be filled by the same method used for the original appointment. Although the resignation of an arbitrator can thus, not be prevented, there is a sanction attached to a resignation of a party appointed arbitrator that is not accepted by the other arbitrators. The resulting vacancy will be filled by the Chairman of the Administrative Council, rather than the party who made the original appointment. Once the vacancy has been filled, the proceedings shall continue from the point they had reached at the time the vacancy occurred. In the event that the oral procedure had already commenced, the new arbitrator has the discretion to request its recommencement (Arbitration Rule 12). Articles 57 and 58 of the Convention deal with the grounds and process of disqualification of arbitrators. Article 57 provides that: A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14. A party to arbitration proceedings may, in addition, propose the disqualification of an arbitrator on the ground that he was ineligible for appointment to the Tribunal under Section 2 of Chapter IV. The initiative for disqualification must come from a party. In accordance with Arbitration Rule 9, a party proposing disqualification must do so promptly, i.e., as soon as the party has learnt of the grounds for possible disqualification and, in any event, before the close of the proceedings. A party that fails to object promptly to a violation of a relevant rule is deemed to have waived its 17 It is generally considered in international arbitration that a tribunal may not continue with the proceedings in a truncated form, i.e., when it is not fully constituted. There has been considerable discussion of whether such truncated tribunals can legitimately continue to administer the arbitration. The Convention s provisions deal with such an eventuality by suspending the proceedings until the tribunal is fully reconstituted.

21 2.7 Procedural Issues 17 right to object, in accordance with Arbitration Rule 27. Grounds for disqualification Conflicts of interest Under the first sentence of Article 57 of the Convention, a party may propose the disqualification of an arbitrator on account of any fact indicating a manifest lack of the qualities required by Article 14(1) of the Convention in relation to members of the Panel. These were set out above. The requirement that the lack of qualities must be manifest implies a heavy burden of proof on the party proposing disqualification. In addition to the grounds under Article 14(1) of the Convention, an arbitrator would be subject to disqualification if it could be shown that the arbitrator had a conflict of interest. A proposal for disqualification based on the alleged lack of independence of the arbitrator was presented by Indonesia against the arbitrator appointed by Amco in the case of Amco v. Indonesia. 18 Indonesia s proposal was based upon previous professional contacts between the arbitrator and Amco, which were not in dispute. Thus, such contacts included, previous tax advice given by the challenged arbitrator to the individual who controlled the claimant companies, as well as the fact that the arbitrator s law firm and Amco s counsel had had a joint office and profit sharing arrangements for many years, although the profit sharing had ended prior to the commencement of the arbitration. Indonesia s proposal was rejected by the other arbitrators, who held that the mere appearance of partiality was not a sufficient ground for disqualification. The challenging party must prove not only facts indicating lack of independence, but also that the lack is manifest or highly probable, not just possible or quasi-certain. They concluded that the facts did not prove that the challenged arbitrator had a manifest lack of independence. 19 Nationality conditions Proposal to disqualify The second sentence of Article 57 of the Convention provides for the possibility of disqualification where the nationality conditions of Section 2 of Chapter IV of the Convention have been breached. However, disqualification on this basis is highly unlikely, as any deviation from the nationality requirements of Article 39 of the Convention would usually be noted during the appointment process. Article 58 sets out the procedure for dealing with a proposal to disqualify. Normally, the unchallenged members of the tribunal will decide upon the matter. In the event that the two (in the case of three arbitrators) unchallenged arbitrators disagree, the final decision will be made by the Chairman of the Administrative Council, who shall also make the decision in the event that a sole arbitrator is challenged. Further details in this respect are contained in Arbitration Rule Amco v. Indonesia, Decision on Jurisdiction, September 25, 1983, 1 ICSID Reports W. M. Tupman, Challenge and Disqualification of Arbitrators in International Commercial Arbitration, 38 International and Comparative Law Quarterly 26, at p. 45 (1989).

22 18 Dispute Settlement In the event that a proposal for disqualification is successful, the resulting vacancy is to be filled by the same method by which the original appointment had been made (Arbitration Rule 11). Summary: Upon notification of a vacancy in the tribunal, the proceedings are suspended by the Secretary-General. Normally, vacancies are filled by the same method as the original appointment. Resignation of a party-appointed arbitrator requires the consent of the other arbitrators. Without consent, the vacancy is filled by the Chairman of the Administrative Council. An arbitrator may also be disqualified for a manifest lack of the qualities required by Article 14(1) of the Convention, lack of independence or breach of the nationality requirements set forth in Article 39 of the Convention.

23 2.7 Procedural Issues CONDUCTING THE ARBITRATION Section 3 of Chapter IV of the Convention (Articles 41 to 47), which is entitled Powers and Functions of the Tribunal, deals with the tribunal s conduct of the arbitration. a) The Rules of Procedure Autonomous nature of ICSID arbitration Article 44 of the Convention Parties autonomy Arbitration Rules Agreement of parties Procedural lacunae Unlike in other forms of administered arbitration, in an ICSID arbitration neither the parties nor the tribunal are constrained by the arbitration legislation of any national legal system. In particular, the mandatory requirements of the arbitration law at the seat of the arbitration do not apply; nor does the public policy of any national system of law. In this respect, the ICSID system is unique. The Convention contains a number of provisions that deal with the procedure to be followed by the tribunal. Article 44 is the primary provision with respect to the procedural rules of the arbitration. It provides that: Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question. Article 44 provides that the proceedings shall be governed primarily by the Convention and the Arbitration Rules, although the parties are free to exclude or modify those rules by agreement. Although the parties retain the freedom to shape the procedural rules governing the arbitration, the most likely scenario once proceedings have commenced is the adoption of the Arbitration Rules, either through express confirmation or by default in the absence of an agreement to the contrary. In this case, the Arbitration Rules in force at the time of consent become binding on the parties and on the tribunal. 20 It is also possible that, during the course of the arbitration, the parties are able to reach agreement on specific procedural points. The most common examples tend to be with respect to the place of proceedings or the time limits for the constitution of the tribunal. In the event of a lacuna in the rules of procedure provided by the Convention or the Arbitration Rules, the tribunal has the power to close such gaps in accordance with Article 44 of the Convention. 20 Liberian Eastern Timber Company (LETCO) v. The Government of the Republic of Liberia, Award, March 31, 1986, 2 ICSID Reports 343, at 357.

24 20 Dispute Settlement Summary: The ICSID system is unique in maintaining its autonomy from national systems of law. Article 44 of the Convention directs the parties to apply the Arbitration Rules, in the absence of an agreement to the contrary. In the event of a procedural lacuna, the tribunal has the power to close such gaps. b) The Tribunal s First Session Preliminary procedural consultation Procedural issues Organization of the first session Deliberations of the tribunal Time limits Pursuant to Arbitration Rule 19, the tribunal shall make the orders required for the conduct of the arbitration. This is normally done following a preliminary procedural consultation (or first session) with the parties. The tribunal s first session also presents the parties with an opportunity to agree on matters of procedure, as foreseen in Arbitration Rule 20. Procedural issues that may be addressed include: the number of arbitrators necessary for a quorum, the language of the proceedings, the number and sequence of pleadings, the time limits for pleadings and the apportionment of costs. As discussed above, as long as the Convention or the Administrative and Financial Regulations are not violated, the tribunal will apply any procedure agreed to by the parties. The tribunal s first session should be held within sixty days of its constitution, or within any other time period agreed to by the parties. The tribunal will meet at the Centre, at a place arranged by the Centre or anywhere else agreed to by the parties in accordance with Article 63 of the Convention after consultation with the Secretary-General and approval by the tribunal (Arbitration Rule 13). The deliberations of the tribunal take place in private and are kept secret. The president of the tribunal presides over deliberations, conducts hearings and sets the date and time of its sessions (Arbitration Rules 14 and 15). The tribunal establishes any necessary time limits for the various steps of the proceedings and may grant extensions to any time limits set (Arbitration Rule 26). Summary: Within 60 days of its constitution (unless otherwise agreed by the parties), the tribunal shall conduct its first session. The tribunal shall seek the views of the parties on questions of procedure and issue the orders required for conduct of the arbitration.

25 2.7 Procedural Issues 21 c) The Written and Oral Procedure Arbitration Rule 29 provides for two distinct phases of the proceedings: a written procedure followed by an oral one. This is subject to modification by the parties. Written phase Information to be included in memorials Pre-hearing conference Oral hearing Closure of proceedings Under Arbitration Rule 31, the pleadings required in the written phase include, in addition to the request for arbitration, the filing of a memorial by the requesting party to be followed by the filing of a counter-memorial by the other party. If the tribunal requests or the parties agree, they may also file additional memorials. Arbitration Rule 31(3) requires that a memorial contain a statement of the relevant facts, a statement of law and the party s submissions. A countermemorial, reply or rejoinder must contain a denial or admission of the statement of facts contained in the previous memorial, any additional facts, a response to the statement of law in the last pleading and the submissions of the party. In addition, the parties are expected to submit supporting documentation in support of their memorials (Arbitration Rule 33). A pre-hearing conference is permitted under Arbitration Rule 21 and may be initiated by the Secretary-General, the president of the tribunal or the parties. The Secretary-General or the president of the tribunal may request the holding of a pre-hearing conference to arrange for an exchange of information between the parties, including, for example, the stipulation of uncontested facts in order to expedite the proceedings. In addition, the parties themselves may request such a pre-hearing conference, subject to the discretion of the president of the tribunal. Unlike the Secretary-General or the president of the tribunal, they may also request such a conference be held to consider the issues in dispute with a view to reaching an amicable settlement. In accordance with Arbitration Rule 29, the parties are entitled to an oral hearing. Hearings are private and therefore closed to the public. Arbitration Rule 32 provides that the tribunal shall, with the consent of the parties, decide which persons (other than the parties, their agents, counsel and advocates) attend the hearing. At the hearing, the parties may present witnesses of fact and experts. According to Rule 32(2), witnesses and experts may only attend the hearing during their testimony, unless the parties agree to allow them to attend the hearing in its entirety. During the hearing the tribunal may put questions to the parties, their agents, counsel and advocates, as well as witnesses and experts. In addition to the tribunal, the parties may examine the witnesses of fact and experts (Arbitration Rule 35). Arbitration Rule 38 provides for an order to be made by the tribunal closing the proceedings, once the presentation of the case by the parties is completed and the case has been fully submitted. Once the proceedings have been closed, the period fixed in Arbitration Rule 46 for the rendering of the tribunal s award begins to run (see below). The tribunal may reopen the proceedings if there is

26 22 Dispute Settlement new evidence or there is a vital need for clarification of specific points. Summary: Proceedings include a written and an oral phase, unless the parties agree otherwise. In the written phase, the parties present their case in memorials containing statements of fact and law, accompanied by supporting documentation. Subsequent memorials must contain a response to the previous memorial either accepting or rejecting the statements of fact and responding to the statement of law. Parties may hold a pre-hearing conference with the tribunal to consider the issues in dispute with a view to reaching an amicable settlement. During an oral hearing before the tribunal, the tribunal may pose questions to the parties, as well as their witnesses and experts, who may also be examined and cross-examined by the parties. d) Dealing with Evidence Memorials Tribunal s discretion The parties are expected to plead their case in their memorials. Memorials should include a statement of facts, together with all the evidence necessary to support their case. Arbitration Rule 33 provides: Without prejudice to the rules concerning the production of documents, each party shall, within time limits fixed by the Tribunal, communicate to the Secretary-General, for transmission to the Tribunal and the other party, precise information regarding the evidence which it intends to produce and that which it intends to request the Tribunal to call for, together with an indication of the points to which such evidence will be directed. The tribunal retains complete discretion in judging the admissibility and the probative value of any evidence that is produced by the parties (Arbitration Rule 34(1)). The tribunal is not bound by the parties submissions in this respect. The tribunal s power with respect to the taking of evidence is confirmed by Article 43 of the Convention, which provides that, except as the parties otherwise agree, the tribunal is empowered to require the production of documents or other evidence (witnesses and experts) and to make any relevant site visits. The tribunal s power in calling for the production of evidence is further amplified in Arbitration Rule 34(2). The parties are required to cooperate with the tribunal s requests, which may take the form of procedural orders.